Digital Razorblades: CIO Insight from App Stores

post by Chris Curran on March 6, 2012

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Razorblades.

This was the thought I had while browsing the “top grossing” apps in the Apple AppStore today. The top 10 grossing apps are “free” and the same is true in the Android store. How could this be? Well, it turns out that these apps ARE free, but make their revenue by selling add-ons, upgrades, tokens, in-game currency, game equipment, etc. This is like the razor vs blades business model, in which the razor is given away for free and the blades are where the money is made.

According to app analyst App Annie, the growth of freemium and in-app purchase (IAP) revenues has been well-documented since Apple opened up the market to free apps back in 2009. Recently, the firm took a deeper data dive to discover if apps with in-app purchases actually earn more revenue on a per app basis. The result? In Jan 2011, the top 100 apps with and without IAP were monetizing the same amount per app. By Dec 2011, apps with IAP were monetizing 2.2X more than apps without IAP.

We’re witnessing a shift in the app marketplace. Freemium models are supplanting premium models as the most effective method of landing on the top-grossing list. Consumers have grown to expect the opportunity to try before they buy or to acquire the core service for free with the option of purchasing extensions that enhance and expand their experience.

Can this model translate into a full-fledged enterprise revenue model, especially ones in which primary interactions are B2B? Because all of your customers and business partners are indeed also consumers, you may be surprised.

What Are Your Digital Razorblades?

The questions for the CIO are these:

What application function or capability could add significant value to customers but be given away for free?

What supplemental functions, data sets, live support, etc. could be provided as incremental purchases in the app?

With all of the talk about public cloud based services, mobility and apps, things can get pretty confusing in terms of where to start and the business case to support them. Instead, maybe focus on offering an online service while putting the delivery channels – cloud, mobile, etc. – as a secondary focus.

Some quick thoughts on types of apps that could be offered for free, with add-on services:

Financial modeling tools + more sophisticated tools, live expert chat

Raw transaction data downloads + visualizations, summaries, analytics

Access to product knowledge/support database + ability to post and interact with the community

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About Chris

Chris Curran a Principal at PwC who works closely with clients on many of their most fundamental IT challenges. As Chief Technologist, Chris leads the advisory practice’s investments in emerging technology, enterprise architecture and technology innovation.. MORE